taxmap/pubs/p969-000.htm#en_us_publink1000204014taxmap/pubs/p969-000.htm#en_us_publink1000255586Child under age 27.(p1)
For FSA and HRA purposes, beginning March 30, 2010, coverage
and reimbursement is allowed for an employee's child under age 27 at the end of
the employee's tax year.
taxmap/pubs/p969-000.htm#en_us_publink1000255713Qualified Medical Expenses.(p1)
For HSA, MSA, FSA, and HRA purposes, a medicine or drug will
be a qualified medical expense only if the medicine or drug:
- Requires a prescription,
- Is available without a prescription (an over-the-counter medicine
or drug) and you get a prescription for it, or
- Is insulin.
This applies to amounts paid after 2010. However, it does not
apply to amounts paid in 2011 for medicines or drugs purchased before January 1,
2011.
Additional tax increased.(p1)
For HSA and MSA purposes, the additional tax on distributions
not used for qualified medical expenses is increased to 20%. This applies to
distributions after 2010.
taxmap/pubs/p969-000.htm#en_us_publink1000255715Photographs of missing children.(p1)
The Internal Revenue Service is a proud partner with the National
Center for Missing and Exploited Children. Photographs of missing children
selected by the Center may appear in this publication on pages that would
otherwise be blank. You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a
child.
Various programs are designed to give individuals tax advantages
to offset health care costs. This publication explains the following programs.
- Health savings accounts (HSAs).
- Medical savings accounts (Archer MSAs and Medicare Advantage
MSAs).
- Health flexible spending arrangements (FSAs).
- Health reimbursement arrangements (HRAs).
An HSA may receive contributions from an eligible individual
or any other person, including an employer or a family member, on behalf of an
eligible individual. Contributions, other than employer contributions, are
deductible on the eligible individual's return whether or not the individual
itemizes deductions. Employer contributions are not included in income.
Distributions from an HSA that are used to pay qualified medical expenses are
not taxed.
An Archer MSA may receive contributions from an eligible individual
and his or her employer, but not both in the same year. Contributions by the
individual are deductible whether or not the individual itemizes deductions.
Employer contributions are not included in income. Distributions from an Archer
MSA that are used to pay qualified medical expenses are not taxed.
A Medicare Advantage MSA is an Archer MSA designated by Medicare
to be used solely to pay the qualified medical expenses of the account holder
who is enrolled in Medicare. Contributions can only be made by Medicare. The
contributions are not included in your income. Distributions from a Medicare
Advantage MSA that are used to pay qualified medical expenses are not taxed.
A health FSA may receive contributions from an eligible individual.
Employers may also contribute. Contributions are not includible in income.
Reimbursements from an FSA that are used to pay qualified medical expenses are
not taxed.
An HRA must receive contributions from the employer only. Employees
may not contribute. Contributions are not includible in income. Reimbursements
from an HRA that are used to pay qualified medical expenses are not taxed.
taxmap/pubs/p969-000.htm#en_us_publink1000250276We welcome your comments about this publication and your suggestions
for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would
be helpful if you would include your daytime phone number, including the area
code, in your correspondence.
You can email us at
*taxforms@irs.gov. (The asterisk must be included in the address.) Please put
"Publications Comment" on the subject line. You can also send us comments from
www.irs.gov/formspubs/, select "Comment on Tax Forms and Publications" under "Information
about."
Although we cannot respond individually to each comment received,
we do appreciate your feedback and will consider your comments as we revise our
tax products.
taxmap/pubs/p969-000.htm#en_us_publink1000250277Visit
www.irs.gov/formspubs/
to download forms and publications, call 1-800-829-3676, or write to the address
below and receive a response within 10 days after your request is received.
Internal Revenue Service
1201 N. Mitsubishi Motorway
Bloomington, IL 61705-6613If you have a tax question, check the information available on
IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of
the above addresses.
taxmap/pubs/p969-000.htm#en_us_publink1000204020A health savings account (HSA) is a tax-exempt trust or custodial
account that you set up with a qualified HSA trustee to pay or reimburse certain
medical expenses you incur. You must be an eligible individual to qualify for an
HSA.
No permission or authorization from the IRS is necessary to establish
an HSA. When you set up an HSA, you will need to work with a trustee. A
qualified HSA trustee can be a bank, an insurance company, or anyone already
approved by the IRS to be a trustee of individual retirement arrangements (IRAs)
or Archer MSAs. The HSA can be established through a trustee that is different
from your health plan provider.
Your employer may already have some information on HSA trustees
in your area.
 | If you have an Archer MSA, you can generally roll it over
into an HSA tax free. See
Rollovers, later. |
taxmap/pubs/p969-000.htm#en_us_publink1000204023You may enjoy several benefits from having an HSA.
- You can claim a tax deduction for contributions you, or someone
other than your employer, make to your HSA even if you do not itemize your
deductions on Form 1040.
- Contributions to your HSA made by your employer (including
contributions made through a cafeteria plan) may be excluded from your gross
income.
- The contributions remain in your account from year to year
until you use them.
- The interest or other earnings on the assets in the account
are tax free.
- Distributions may be tax free if you pay qualified medical
expenses. See
Qualified medical expenses,
later.
- An HSA is "portable" so it stays with you if you change employers
or leave the work force.
To be an eligible individual and qualify for an HSA, you must
meet the following requirements.
- You must be covered under a high deductible health plan (HDHP),
described later, on the first day of the month.
- You have no other health coverage except what is permitted
under
Other health coverage, later.
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else's 2010
tax return.
| Under the last-month rule, you are considered to be an eligible
individual for the entire year if you are an eligible individual on the first
day of the last month of your tax year (December 1 for most taxpayers). |
If you meet these requirements, you are an eligible individual
even if your spouse has non-HDHP family coverage, provided your spouse's
coverage does not cover you.
 | If another taxpayer is entitled to claim an exemption for
you, you cannot claim a deduction for an HSA contribution. This is true even if
the other person does not actually claim your exemption. |
| Each spouse who is an eligible individual who wants an HSA
must open a separate HSA. You cannot have a joint HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204030An HDHP has:
- A higher annual deductible than typical health plans, and
- A maximum limit on the sum of the annual deductible and out-of-pocket
medical expenses that you must pay for covered expenses. Out-of-pocket expenses
include copayments and other amounts, but do not include premiums.
An HDHP may provide preventive care benefits without a deductible
or with a deductible below the minimum annual deductible. Preventive care
includes, but is not limited to, the following.
- Periodic health evaluations, including tests and diagnostic
procedures ordered in connection with routine examinations, such as annual
physicals.
- Routine prenatal and well-child care.
- Child and adult immunizations.
- Tobacco cessation programs.
- Obesity weight-loss programs.
- Screening services. This includes screening services for the
following:
- Cancer.
- Heart and vascular diseases.
- Infectious diseases.
- Mental health conditions.
- Substance abuse.
- Metabolic, nutritional, and endocrine conditions.
- Musculoskeletal disorders.
- Obstetric and gynecological conditions.
- Pediatric conditions.
- Vision and hearing disorders.
For more information on screening services, see Notice 2004-23,
2004-15 I.R.B. 725 available at
www.irs.gov/irb/2004-15_IRB/ar10.html.
The following table shows the minimum annual deductible and maximum
annual deductible and other out-of-pocket expenses for HDHPs for 2010.
| | Self-only coverage | Family coverage |
| Minimum annual deductible | $1,200 | $2,400 |
Maximum annual deductible and
other out-of-pocket expenses*
| $5,950 | $11,900 |
| * This limit does not apply to deductibles and expenses for
out-of-network services if the plan uses a network of providers. Instead, only
deductibles and out-of-pocket expenses for services within the network should be
used to figure whether the limit applies.
|
| The following table shows the minimum annual deductible and
maximum annual deductible and other out-of-pocket expenses for HDHPs for 2011.
|
| | Self-only coverage | Family coverage |
| Minimum annual deductible | $1,200 | $2,400 |
Maximum annual deductible and
other out-of-pocket expenses*
| $5,950 | $11,900 |
| * This limit does not apply to deductibles and expenses for
out-of-network services if the plan uses a network of providers. Instead, only
deductibles and out-of-pocket expenses for services within the network should be
used to figure whether the limit applies.
|
Self-only HDHP coverage is an HDHP covering only an eligible
individual. Family HDHP coverage is an HDHP covering an eligible individual and
at least one other individual (whether or not that individual is an eligible
individual).
taxmap/pubs/p969-000.htm#en_us_publink1000204036An eligible individual and his dependent child are covered under
an "employee plus one" HDHP offered by the individual's employer. This is family
HDHP coverage.
taxmap/pubs/p969-000.htm#en_us_publink1000204037There are some family plans that have deductibles for both the
family as a whole and for individual family members. Under these plans, if you
meet the individual deductible for one family member, you do not have to meet
the higher annual deductible amount for the family. If either the deductible for
the family as a whole or the deductible for an individual family member is below
the minimum annual deductible for family coverage, the plan does not qualify as
an HDHP.
taxmap/pubs/p969-000.htm#en_us_publink1000204038You have family health insurance coverage in 2010. The annual
deductible for the family plan is $3,500. This plan also has an individual
deductible of $1,500 for each family member. The plan does not qualify as an
HDHP because the deductible for an individual family member is below the minimum
annual deductible ($2,400) for family coverage.
taxmap/pubs/p969-000.htm#en_us_publink1000204039You (and your spouse, if you have family coverage) generally
cannot have any other health coverage that is not an HDHP. However, you can
still be an eligible individual even if your spouse has non-HDHP coverage
provided you are not covered by that plan.
You can have additional insurance that provides benefits only for the following
items.
- Liabilities incurred under workers' compensation laws, tort
liabilities, or liabilities related to ownership or use of property.
- A specific disease or illness.
- A fixed amount per day (or other period) of hospitalization.
You can also have coverage (whether provided through insurance
or otherwise) for the following items.
- Accidents.
- Disability.
- Dental care.
- Vision care.
- Long-term care.
| Plans in which substantially all of the coverage is through
the above listed items are not HDHPs. For example, if your plan provides
coverage substantially all of which is for a specific disease or illness, the
plan is not an HDHP for purposes of establishing an HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204041You can have a prescription drug plan, either as part of your
HDHP or a separate plan (or rider), and qualify as an eligible individual if the
plan does not provide benefits until the minimum annual deductible of the HDHP
has been met. If you can receive benefits before that deductible is met, you are
not an eligible individual.
taxmap/pubs/p969-000.htm#en_us_publink1000204042An employee covered by an HDHP and a health FSA or an HRA that
pays or reimburses qualified medical expenses generally cannot make
contributions to an HSA. Health FSAs and HRAs are discussed later.
However, an employee can make contributions to an HSA while covered
under an HDHP and one or more of the following arrangements.
- Limited-purpose health FSA or HRA. These arrangements can
pay or reimburse the items listed earlier under
Other health coverage,
except long-term care. Also, these arrangements can pay or
reimburse preventive care expenses because they can be paid without having to
satisfy the deductible.
- Suspended HRA. Before the beginning of an HRA coverage period,
you can elect to suspend the HRA. The HRA does not pay or reimburse, at any
time, the medical expenses incurred during the suspension period except
preventive care and items listed under
Other health coverage.
When the suspension period ends, you are no longer eligible
to make contributions to an HSA.
- Post-deductible health FSA or HRA. These arrangements do not
pay or reimburse any medical expenses incurred before the minimum annual
deductible amount is met. The deductible for these arrangements does not have to
be the same as the deductible for the HDHP, but benefits may not be provided
before the minimum annual deductible amount is met.
- Retirement HRA. This arrangement pays or reimburses only those
medical expenses incurred after retirement. After retirement you are no longer
eligible to make contributions to an HSA.
Coverage during a grace period by a general purpose health FSA
is allowed if the balance in the health FSA at the end of its prior year plan is
zero, or a qualified HSA distribution (discussed later) of any balance remaining
is made to an HSA. See
Flexible Spending Arrangements (FSAs), later.
Any eligible individual can contribute to an HSA. For an employee's
HSA, the employee, the employee's employer, or both may contribute to the
employee's HSA in the same year. For an HSA established by a self-employed (or
unemployed) individual, the individual can contribute. Family members or any
other person may also make contributions on behalf of an eligible individual.
Contributions to an HSA must be made in cash. Contributions of
stock or property are not allowed.
taxmap/pubs/p969-000.htm#en_us_publink1000204046The amount you or any other person can contribute to your HSA
depends on the type of HDHP coverage you have, your age, the date you become an
eligible individual, and the date you cease to be an eligible individual. For
2010, if you have self-only HDHP coverage, you can contribute up to $3,050. If
you have family HDHP coverage, you can contribute up to $6,150.
| For 2011, if you have self-only HDHP coverage, you can contribute
up to $3,050. If you have family HDHP coverage you can contribute up to $6,150. |
If you were, or were considered (under the last-month rule, discussed
later), an eligible individual for the entire year and did not change your type
of coverage, you can contribute the full amount based on your type of coverage.
However, if you were not an eligible individual for the entire year or changed
your coverage during the year, your contribution limit is the greater of:
- The limitation shown on the last line of the
Line 3 Limitation Chart and Worksheet
in the Instructions for Form 8889, Health Savings Accounts
(HSAs), or
- The maximum annual HSA contribution based on your HDHP coverage
(self-only or family) on the first day of the last month of your tax year.
| If you had family HDHP coverage on the first day of the last
month of your tax year, your contribution limit for 2010 is $6,150 even if you
changed coverage during the year. |
taxmap/pubs/p969-000.htm#en_us_publink1000204049Under the last-month rule, if you are an eligible individual
on the first day of the last month of your tax year (December 1 for most
taxpayers), you are considered an eligible individual for the entire year. You
are treated as having the same HDHP coverage for the entire year as you had on
the first day of that last month.
taxmap/pubs/p969-000.htm#en_us_publink1000204050If contributions were made to your HSA based on you being an
eligible individual for the entire year under the last-month rule, you must
remain an eligible individual during the testing period. For the last-month
rule, the testing period begins with the last month of your tax year and ends on
the last day of the 12th month following that month. For example, December 1,
2010, through December 31, 2011.
If you fail to remain an eligible individual during the testing
period, other than because of death or becoming disabled, you will have to
include in income the total contributions made to your HSA that would not have
been made except for the last-month rule. You include this amount in your income
in the year in which you fail to be an eligible individual. This amount is also
subject to a 10% additional tax. The income and additional tax are shown on Form
8889, Part III.
taxmap/pubs/p969-000.htm#en_us_publink1000204051Example 1.(p5)
Chris, age 53, becomes an eligible individual on December 1,
2010. He has family HDHP coverage on that date. Under the last-month rule, he
contributes $6,150 to his HSA.
Chris fails to be an eligible individual in June 2011. Because
Chris did not remain an eligible individual during the testing period (December
1, 2010, through December 31, 2011), he must include in his 2011 income the
contributions made in 2010 that would not have been made except for the
last-month rule. Chris uses the worksheet for line 3 in the Form 8889
instructions to determine this amount.
| January | -0- |
| February | -0- |
| March | -0- |
| April | -0- |
| May | -0- |
| June | -0- |
| July | -0- |
| August | -0- |
| September | -0- |
| October | -0- |
| November | -0- |
| December | $6,150.00 |
| Total for all months | $6,150.00 |
| Limitation. Divide the total by 12
| $512.50 |
Chris would include $5,637.50 ($6,150.00 – $512.50) in
his gross income on his 2011 tax return. Also, a 10% additional tax applies to
this amount.
Example 2.(p5)
Erika, age 39, has self-only HDHP coverage on January 1, 2010.
Erika changes to family HDHP coverage on November 1, 2010. Because Erika has
family HDHP coverage on December 1, 2010, she contributes $6,150 for 2010.
Erika fails to be an eligible individual in March 2011. Because
she did not remain an eligible individual during the testing period (December 1,
2010, through December 31, 2011), she must include in income the contribution
made that would not have been made except for the last-month rule. Erika uses
the worksheet for line 3 in the Form 8889 instructions to determine this amount.
| January | $3,050.00 |
| February | $3,050.00 |
| March | $3,050.00 |
| April | $3,050.00 |
| May | $3,050.00 |
| June | $3,050.00 |
| July | $3,050.00 |
| August | $3,050.00 |
| September | $3,050.00 |
| October | $3,050.00 |
| November | $6,150.00 |
| December | $6,150.00 |
| Total for all months | $42,800.00 |
| Limitation. Divide the total by 12
| $3,566.67 |
Erika would include $2,583.33 ($6,150 – $3,566.67) in
her gross income on her 2011 tax return. Also, a 10% additional tax applies to
this amount.
taxmap/pubs/p969-000.htm#en_us_publink1000204055For 2010, if you are an eligible individual who is age 55 or
older, your contribution limit is increased by $1,000. For example, if you have
self-only coverage, you can contribute up to $4,050 (the contribution limit for
self-only coverage ($3,050) plus the additional contribution of $1,000).
However, see
Enrolled in Medicare, later.
| If you have more than one HSA in 2010, your total contributions
to all the HSAs cannot be more than the limits discussed earlier. |
taxmap/pubs/p969-000.htm#en_us_publink1000204058You must reduce the amount that can be contributed (including
any additional contribution) to your HSA by the amount of any contribution made
to your Archer MSA (including employer contributions) for the year. A special
rule applies to married people, discussed next, if each spouse has family
coverage under an HDHP.
taxmap/pubs/p969-000.htm#en_us_publink1000204059If either spouse has family HDHP coverage, both spouses are treated
as having family HDHP coverage. If each spouse has family coverage under a
separate plan, the contribution limit for 2010 is $6,150. You must reduce the
limit on contributions, before taking into account any additional contributions,
by the amount contributed to both spouse's Archer MSAs. After that reduction,
the contribution limit is split equally between the spouses unless you agree on
a different division.
| The rules for married people apply only if both spouses are
eligible individuals. |
If both spouses are 55 or older and not enrolled in Medicare,
each spouse's contribution limit is increased by the additional contribution. If
both spouses meet the age requirement, the total contributions under family
coverage cannot be more than $8,150. Each spouse must make the additional
contribution to his or her own HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204061For 2010, Mr. Auburn and his wife are both eligible individuals.
They each have family coverage under separate HDHPs. Mr. Auburn is 58 years old
and Mrs. Auburn is 53. Mr. and Mrs. Auburn can split the family contribution
limit ($6,150) equally or they can agree on a different division. If they split
it equally, Mr. Auburn can contribute $4,075 to an HSA (one-half the maximum
contribution for family coverage ($3,075) + $1,000 additional contribution) and
Mrs. Auburn can contribute $3,075 to an HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204062You must reduce the amount you, or any other person, can contribute
to your HSA by the amount of any contributions made by your employer that are
excludable from your income. This includes amounts contributed to your account
by your employer through a cafeteria plan.
taxmap/pubs/p969-000.htm#en_us_publink1000204063Beginning with the first month you are enrolled in Medicare,
your contribution limit is zero.
taxmap/pubs/p969-000.htm#en_us_publink1000204064You turned age 65 in July 2010 and enrolled in Medicare. You
had an HDHP with self-only coverage and are eligible for an additional
contribution of $1,000. Your contribution limit is $2,025 ($4,050 × 6
÷ 12).
taxmap/pubs/p969-000.htm#en_us_publink1000204065A qualified HSA funding distribution may be made from your traditional
IRA or ROTH IRA to your HSA. This distribution cannot be made from an ongoing
SEP IRA or SIMPLE IRA. For this purpose, a SEP IRA or SIMPLE IRA is ongoing if
an employer contribution is made for the plan year ending with or within your
tax year in which the distribution would be made.
The maximum qualified HSA funding distribution depends on the
HDHP coverage (self-only or family) you have on the first day of the month in
which the contribution is made and your age as of the end of the tax year. The
distribution must be made directly by the trustee of the IRA to the trustee of
the HSA. The distribution is not included in your income, is not deductible, and
reduces the amount that can be contributed to your HSA. The qualified HSA
funding distribution is shown on Form 8889, Part I, line 10 for the year in
which the distribution is made.
You can make only one qualified HSA funding distribution during
your lifetime. However, if you make a distribution during a month when you have
self-only HDHP coverage, you can make another qualified HSA funding distribution
in a later month in that tax year if you change to family HDHP coverage. The
total qualified HSA funding distribution cannot be more than the contribution
limit for family HDHP coverage plus any additional contribution to which you are
entitled.
taxmap/pubs/p969-000.htm#en_us_publink1000204066In 2010, you are an eligible individual, age 57, with self-only
HDHP coverage. You can make a qualified HSA funding distribution of $4,050
($3,050 plus $1,000 additional contribution).
taxmap/pubs/p969-000.htm#en_us_publink1000204067You must remain an eligible individual during the testing period.
For a qualified HSA funding distribution, the testing period begins with the
month in which the qualified HSA funding distribution is contributed and ends on
the last day of the 12th month following that month. For example, if a qualified
HSA funding distribution is contributed to your HSA on August 10, 2010, your
testing period begins in August 2010, and ends on August 31, 2011.
If you fail to remain an eligible individual during the testing
period, other than because of death or becoming disabled, you will have to
include in income the qualified HSA funding distribution. You include this
amount in income in the year in which you fail to be an eligible individual.
This amount is also subject to a 10% additional tax. The income and the
additional tax are shown on Form 8889, Part III.
Each qualified HSA funding distribution allowed has its own testing
period. For example, you are an eligible individual, age 45, with self-only HDHP
coverage. On June 18, 2010, you make a qualified HSA funding distribution of
$3,050. On July 27, 2010, you enroll in family HDHP coverage and on August 17,
2010, you make a qualified HSA funding distribution of $3,100. Your testing
period for the first distribution begins in June 2010 and ends on June 30, 2011.
Your testing period for the second distribution begins in August 2010 and ends
on August 31, 2011.
The testing period rule that applies under the last-month rule
(discussed earlier) does not apply to amounts contributed to an HSA through a
qualified HSA funding distribution. If you remain an eligible individual during
the entire funding distribution testing period, then no amount of that
distribution is included in income and will not be subject to the additional tax
for failing to meet the last-month rule testing period.
taxmap/pubs/p969-000.htm#en_us_publink1000204068A rollover contribution is not included in your income, is not
deductible, and does not reduce your contribution limit.
taxmap/pubs/p969-000.htm#en_us_publink1000204069You can roll over amounts from Archer MSAs and other HSAs into
an HSA. You do not have to be an eligible individual to make a rollover
contribution from your existing HSA to a new HSA. Rollover contributions do not
need to be in cash. Rollovers are not subject to the annual contribution limits.
You must roll over the amount within 60 days after the date of
receipt. You can make only one rollover contribution to an HSA during a 1-year
period.
Note.If you instruct the trustee of your HSA to transfer funds directly
to the trustee of another HSA, the transfer is not considered a rollover. There
is no limit on the number of these transfers. Do not include the amount
transferred in income, deduct it as a contribution, or include it as a
distribution on Form 8889, line 14a.
taxmap/pubs/p969-000.htm#en_us_publink1000204071taxmap/pubs/p969-000.htm#en_us_publink1000204074You must remain an eligible individual during the testing period.
For a qualified HSA distribution, the testing period begins with the month in
which the qualified HSA distribution is contributed and ends on the last day of
the 12th month following that month. For example, if a qualified HSA
distribution is contributed to your HSA on December 31, 2010, your testing
period runs from December 2010, through December 31, 2011.
If you fail to remain an eligible individual during the testing
period, other than because of death or becoming disabled, you will have to
include in income the qualified HSA distribution. You include this amount in
income in the year in which you fail to be an eligible individual. This amount
is also subject to a 10% additional tax. The income and the additional tax are
shown on Form 8889, Part III.
taxmap/pubs/p969-000.htm#en_us_publink1000204075You can make contributions to your HSA for 2010 until April 18,
2011. If you fail to be an eligible individual during 2010, you can still make
contributions, up until April 18, 2011, for the months you were an eligible
individual.
Your employer can make contributions to your HSA between January
1, 2011, and April 18, 2011, that are allocated to 2010. Your employer must
notify you and the trustee of your HSA that the contribution is for 2010. The
contribution will be reported on your 2011 Form W-2.
taxmap/pubs/p969-000.htm#en_us_publink1000204076Contributions made by your employer are not included in your
income. Contributions to an employee's account by an employer using the amount
of an employee's salary reduction through a cafeteria plan are treated as
employer contributions. You can claim contributions you made and contributions
made by any other person, other than your employer, on your behalf, as an
adjustment to income.
Contributions by a partnership to a bona fide partner's HSA are
not contributions by an employer. The contributions are treated as a
distribution of money and are not included in the partner's gross income.
Contributions by a partnership to a partner's HSA for services rendered are
treated as guaranteed payments that are deductible by the partnership and
includible in the partner's gross income. In both situations, the partner can
deduct the contribution made to the partner's HSA.
Contributions by an S corporation to a 2% shareholder-employee's
HSA for services rendered are treated as guaranteed payments and are deductible
by the S corporation and includible in the shareholder-employee's gross income.
The shareholder-employee can deduct the contribution made to the
shareholder-employee's HSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204077Report all contributions to your HSA on Form 8889 and file it
with your Form 1040 or Form 1040NR. You should include all contributions made
for 2010, including those made by April 18, 2011, that are designated for 2010.
Contributions made by your employer and qualified HSA funding distributions are
also shown on the form.
You should receive Form 5498-SA, HSA, Archer MSA, or Medicare
Advantage MSA Information, from the trustee showing the amount contributed to
your HSA during the year. Your employer's contributions also will be shown in
box 12 of Form W-2, Wage and Tax Statement, with code W. Follow the instructions
for Form 8889. Report your HSA deduction on Form 1040 or Form 1040NR, line 25.
taxmap/pubs/p969-000.htm#en_us_publink1000204078You will have excess contributions if the contributions to your
HSA for the year are greater than the limits discussed earlier. Excess
contributions are not deductible. Excess contributions made by your employer are
included in your gross income. If the excess contribution is not included in box
1 of Form W-2, you must report the excess as "Other income" on your tax return.
Generally, you must pay a 6% excise tax on excess contributions.
See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other
Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each
tax year the excess contribution remains in the account.
You may withdraw some or all of the excess contributions and
not pay the excise tax on the amount withdrawn if you meet the following
conditions.
- You withdraw the excess contributions by the due date, including
extensions, of your tax return for the year the contributions were made.
- You withdraw any income earned on the withdrawn contributions
and include the earnings in "Other income" on your tax return for the year you
withdraw the contributions and earnings.
| If you fail to remain an eligible individual during any of
the testing periods, discussed earlier, the amount you have to include in income
is not an excess contribution. If you withdraw any of those amounts, the amount
is treated the same as any other distribution from an HSA, discussed later. |
taxmap/pubs/p969-000.htm#en_us_publink1000204080You may be able to deduct excess contributions for previous years
that are still in your HSA. The excess contribution you can deduct for the
current year is the lesser of the following two amounts.
- Your maximum HSA contribution limit for the year minus any
amounts contributed to your HSA for the year.
- The total excess contributions in your HSA at the beginning
of the year.
Amounts contributed for the year include contributions by you,
your employer, and any other person. They also include any qualified HSA funding
distribution made to your HSA. Any excess contribution remaining at the end of a
tax year is subject to the additional tax. See Form 5329.
taxmap/pubs/p969-000.htm#en_us_publink1000204081You will generally pay medical expenses during the year without
being reimbursed by your HDHP until you reach the annual deductible for the
plan. When you pay medical expenses during the year that are not reimbursed by
your HDHP, you can ask the trustee of your HSA to send you a distribution from
your HSA.
You can receive tax-free distributions from your HSA to pay or
be reimbursed for qualified medical expenses you incur after you establish the
HSA. If you receive distributions for other reasons, the amount you withdraw
will be subject to income tax and may be subject to an additional 10% tax. You
do not have to make distributions from your HSA each year.
| If you are no longer an eligible individual, you can still
receive tax-free distributions to pay or reimburse your qualified medical
expenses. |
Generally, a distribution is money you get from your health savings
account. Your total distributions include amounts paid with a debit card that
restricts payments to health care and amounts withdrawn from the HSA by other
individuals that you have designated. The trustee will report any distribution
to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or
Medicare Advantage MSA.
taxmap/pubs/p969-000.htm#en_us_publink1000204083Qualified medical expenses are those expenses that would generally
qualify for the medical and dental expenses deduction. These are explained in
Publication 502, Medical and Dental Expenses. However, even though
non-prescription medicines (other than insulin) do not qualify for the medical
and dental expenses deduction, they do qualify as expenses for HSA purposes.
Note.After 2010, non-prescription medicines (other than insulin)
do not qualify as an expense for HSA purposes. See the discussion under What's
New for 2011, earlier.
For HSA purposes, expenses incurred before you establish your
HSA are not qualified medical expenses. State law determines when an HSA is
established. An HSA that is funded by amounts rolled over from an Archer MSA or
another HSA is established on the date the prior account was established.
If, under the last-month rule, you are considered to be an eligible
individual for the entire year for determining the contribution amount, only
those expenses incurred after you actually establish your HSA are qualified
medical expenses.
Qualified medical expenses are those incurred by the following
persons.
- You and your spouse.
- All dependents you claim on your tax return.
- Any person you could have claimed as a dependent on your return
except that:
- The person filed a joint return,
- The person had gross income of $3,650 or more, or
- You, or your spouse if filing jointly, could be claimed
as a dependent on someone else's 2010 return.
| For this purpose, a child of parents that are divorced, separated,
or living apart for the last 6 months of the calendar year is treated as the
dependent of both parents whether or not the custodial parent releases the claim
to the child's exemption. |
| You cannot deduct qualified medical expenses as an itemized
deduction on Schedule A (Form 1040) that are equal to the tax-free distribution
from your HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204086You cannot treat insurance premiums as qualified medical expenses
unless the premiums are for:
- Long-term care insurance.
- Health care continuation coverage (such as coverage under
COBRA).
- Health care coverage while receiving unemployment compensation
under federal or state law.
- Medicare and other health care coverage if you were 65 or
older (other than premiums for a Medicare supplemental policy, such as Medigap).
The premiums for long-term care insurance (item (1)) that you
can treat as qualified medical expenses are subject to limits based on age and
are adjusted annually. See
Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040).
Items (2) and (3) can be for your spouse or a dependent meeting
the requirement for that type of coverage. For item (4), if you, the account
beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse
or a dependent (who is 65 or older) generally are not qualified medical
expenses.
taxmap/pubs/p969-000.htm#en_us_publink1000204087You cannot claim this credit for premiums that you pay with a
tax-free distribution from your HSA. See Publication 502 for more information on
this credit.
taxmap/pubs/p969-000.htm#en_us_publink1000204088The following situations result in deemed taxable distributions
from your HSA.
- You engaged in any transaction prohibited by section 4975
with respect to any of your HSAs, at any time in 2010. Your account ceases to be
an HSA as of January 1, 2010, and you must include the fair market value of all
assets in the account as of January 1, 2010, on Form 8889, line 14a.
- You used any portion of any of your HSAs as security for a
loan at any time in 2010. You must include the fair market value of the assets
used as security for the loan as income on Form 1040 or Form 1040NR, line 21.
Examples of prohibited transactions include the direct or indirect:
- Sale, exchange, or leasing of property between you and the
HSA,
- Lending of money between you and the HSA,
- Furnishing goods, services, or facilities between you and
the HSA, and
- Transfer to or use by you, or for your benefit, of any assets
of the HSA.
Any deemed distribution will not be treated as used to pay qualified
medical expenses. These distributions are included in your income and are
subject to the additional 10% tax, discussed later.
 | Recordkeeping.
You must keep records sufficient to show that:
- The distributions were exclusively to pay or reimburse
qualified medical expenses,
- The qualified medical expenses had not been previously
paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized
deduction in any year.
Do not send these records with your tax return. Keep them
with your tax records.
|
taxmap/pubs/p969-000.htm#en_us_publink1000204090How you report your distributions depends on whether or not you
use the distribution for qualified medical expenses (defined earlier).
- If you use a distribution from your HSA for qualified medical
expenses, you do not pay tax on the distribution but you have to report the
distribution on Form 8889. However, the distribution of an excess contribution
taken out after the due date, including extensions, of your return is subject to
tax even if used for qualified medical expenses. Follow the instructions for the
form and file it with your Form 1040 or Form 1040NR.
- If you do not use a distribution from your HSA for qualified
medical expenses, you must pay tax on the distribution. Report the amount on
Form 8889 and file it with your Form 1040 or Form 1040NR. If you have a taxable
HSA distribution, include it in the total on Form 1040 or Form 1040NR, line 21,
and enter "HSA" and the amount on the dotted line next to line 21. You may have
to pay an additional 10% tax on your taxable distribution.
| HSA administration and maintenance fees withdrawn by the
trustee are not reported as distributions from the HSA. |
taxmap/pubs/p969-000.htm#en_us_publink1000204092There is an additional 10% tax on the part of your distributions
not used for qualified medical expenses. Figure the tax on Form 8889 and file it
with your Form 1040 or Form 1040NR. Report the additional tax on Form 1040, line
60, or Form 1040NR, line 59, and enter "HSA" and the amount on the dotted line
next to that line.
Note.For tax years beginning after December 31, 2010, the additional
tax increases to 20%.
taxmap/pubs/p969-000.htm#en_us_publink1000204093There is no additional tax on distributions made after the date
you are disabled, reach age 65, or die.
taxmap/pubs/p969-000.htm#en_us_publink1000204094An HSA is generally exempt from tax. You are permitted to take
a distribution from your HSA at any time; however, only those amounts used
exclusively to pay for qualified medical expenses are tax free. Amounts that
remain at the end of the year are generally carried over to the next year (see
Excess contributions,
earlier). Earnings on amounts in an HSA are not included in
your income while held in the HSA.
You should choose a beneficiary when you set up your HSA. What
happens to that HSA when you die depends on whom you designate as the
beneficiary.
taxmap/pubs/p969-000.htm#en_us_publink1000204097If your spouse is the designated beneficiary of your HSA, it
will be treated as your spouse's HSA after your death.
taxmap/pubs/p969-000.htm#en_us_publink1000204098If your spouse is not the designated beneficiary of your HSA:
- The account stops being an HSA, and
- The fair market value of the HSA becomes taxable to the beneficiary
in the year in which you die.
If your estate is the beneficiary, the value is included on
your final income tax return.
| The amount taxable to a beneficiary other than the estate
is reduced by any qualified medical expenses for the decedent that are paid by
the beneficiary within 1 year after the date of death. |
taxmap/pubs/p969-000.htm#en_us_publink1000204100You must file Form 8889 with your Form 1040 or Form 1040NR if
you (or your spouse, if married filing a joint return) had any activity in your
HSA during the year. You must file the form even if only your employer or your
spouse's employer made contributions to the HSA.
If, during the tax year, you are the beneficiary of two or more
HSAs or you are a beneficiary of an HSA and you have your own HSA, you must
complete a separate Form 8889 for each HSA. Enter "statement" at the top of each
Form 8889 and complete the form as instructed. Next, complete a controlling Form
8889 combining the amounts shown on each of the statement Forms 8889. Attach the
statements to your tax return after the controlling Form 8889.
taxmap/pubs/p969-000.htm#en_us_publink1000204101This section contains the rules that employers must follow if
they decide to make HSAs available to their employees. Unlike the previous
discussions, "you" refers to the employer and not to the employee.
taxmap/pubs/p969-000.htm#en_us_publink1000204102If you want your employees to be able to have an HSA, they must
have an HDHP. You can provide no additional coverage other than those exceptions
listed previously under
Other health coverage.You can make contributions to your employees' HSAs. You deduct
the contributions on the "Employee benefit programs" line of your business
income tax return for the year in which you make the contributions. If the
contribution is allocated to the prior year, you still deduct it in the year in
which you made the contribution. If you are filing Form 1040, Schedule C, this
is Part II, line 14.
taxmap/pubs/p969-000.htm#en_us_publink1000204105If you decide to make contributions, you must make comparable
contributions to all comparable participating employees' HSAs. Your
contributions are comparable if they are either:
- The same amount, or
- The same percentage of the annual deductible limit under the
HDHP covering the employees.
The comparability rules do not apply to contributions made through
a cafeteria plan.
Comparable participating employees:
- Are covered by your HDHP and are eligible to establish an
HSA,
- Have the same category of coverage (either self-only or family
coverage), and
- Have the same category of employment (part-time, full-time,
or former employees).
To meet the comparability requirements for eligible employees
who have not established an HSA by December 31 or have not notified you that
they have an HSA, you must meet a notice requirement and a contribution
requirement.
You will meet the notice requirement if by January 15 of the
following calendar year you provide a written notice to all such employees. The
notice must state that each eligible employee who, by the last day of February,
establishes an HSA and notifies you that they have established an HSA will
receive a comparable contribution to the HSA for the prior year. For a sample of
the notice, see Regulation 54.498G-4 A-14(c). You will meet the contribution
requirement for these employees if by April 18, 2011, you contribute comparable
amounts plus reasonable interest to the employee's HSA for the prior year.
Note.For purposes of making contributions to HSAs of non-highly compensated
employees, highly compensated employees shall not be treated as comparable
participating employees.
taxmap/pubs/p969-000.htm#en_us_publink1000204108If you made contributions to your employees' HSAs that were not
comparable, you must pay an excise tax of 35% of the amount you contributed.
taxmap/pubs/p969-000.htm#en_us_publink1000204109Amounts you contribute to your employees' HSAs are generally
not subject to employment taxes. You must report the contributions in box 12 of
the Form W-2 you file for each employee. This includes the amounts the employee
elected to contribute through a cafeteria plan. Enter code "W" in box 12.
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